<div id="readability-page-1"><p>Shares of <strong>Alphabet</strong> <span>(GOOGL<span> -1.02%</span>)</span> <span>(GOOG<span> -0.92%</span>)</span> sank after <strong>Apple</strong> executive Eddy Cue said that searches on Safari declined for the first time ever in April. Cue attributed the decline to people using more artificial intelligence (AI) chatbots and predicted that AI search engines will eventually replace traditional search.</p> <p>He added that Apple will likely add search options in Apple's Safari browser from AI companies such as OpenAI, Perplexity, and Anthropic in the future. He also said that within the next decade, iPhones may not even be around -- the implication being that the combination of AI and wearables could replace smartphones. </p>  <p>The news led Alphabet bears to declare that search has officially been disrupted and is now set to become a dying business. However, there are good reasons to believe this is not true, and Alphabet will be just fine. Let's look at four reasons why Alphabet investors should not panic.</p>  <h2>1. $20 billion</h2> <p>$20 billion is the amount of revenue-sharing money that Apple receives from Alphabet each year for Google to be the exclusive search engine for its Safari browser. The revenue is pure margin and, as such, accounts for more than 15% of Apple's operating income. </p> <p>Cue's comments were part of his testimony in federal court during the remedy phase portion of the Department of Justice's antitrust lawsuit against Alphabet. There is no doubt that Apple wants this highly lucrative revenue-sharing agreement to continue.</p> <p>By publicly calling out a decline in Google's search queries and floating the idea of adding AI-powered search to Safari, Apple is looking to accomplish a few goals. The first is making it known that Google is facing increased competition, which could help justify the two companies keeping their current search deal in place. Second, Apple is signaling that it has other options, which could be an attempt to improve its bargaining power for any future search revenue-sharing deals. Finally, Apple is likely trying to shift the narrative that it is a technological laggard and show that it is a forward-thinking player in AI.</p> <p>At the end of the day, though, Apple has 20 billion reasons why it would want to depict search as becoming increasingly irrelevant.</p> <h2>2. Queries vs. profitable queries</h2> <p>For its part, Alphabet refuted Apple's claims about its search queries declining in a blog post. It said it continued to see overall search query growth, including on Apple devices and platforms. Technically, Apple's and Alphabet's statements could be true if Apple's Safari browser were losing some market share on its own devices. </p> <p>Regardless, there is also a big difference between search queries and profitable search queries. Historically, Alphabet only serves ads on 20% of its search queries. Meanwhile, its most profitable searches are generally simplistic terms, such as searches for &#34;iPhone&#34; or &#34;cheap insurance.&#34; It also has a strong local ad network, so searches such as &#34;the best pizza near me&#34; also do well. Notably, when I used this prompt, Google search provided much better results and easier ways to order than AI chatbots. </p> <p>Meanwhile, Google isn't making money from searches about historical events or curiosity-driven questions with no commercial relevance. So, asking AI chatbots complex questions about the Civil War doesn't cost Alphabet any money.</p> <p>At the end of the day, losing complex search queries to AI chatbots will probably have very little impact on Google search revenue moving forward.</p> <div><p><img src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84MTc2NzUvZ2V0dHlpbWFnZXMtMTQ1MDkyMjE2Ny5qcGcmdz03MDA?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="700" height="525" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84MTc2NzUvZ2V0dHlpbWFnZXMtMTQ1MDkyMjE2Ny5qcGcmdz03MDA"/></p><p>Image source: Getty Images.</p> </div> <h2>3. AI is likely to have a different monetization model</h2> <p>Another important thing to consider is that AI chatbots are likely to eventually have a much different monetization model than search. The cost of answering AI queries is exponentially higher than providing search results, and AI also leads to a lot of queries that would not be ideal for advertising.</p> <p>AI is currently generally free without ads, while premium tiers cost around $20 a month (ChatGPT Pro, Perplexity Pro, Gemini Advanced). Paid tiers with some advertising support are likely the future model of the industry. However, this is likely to make AI chatbots more complementary than replace search, for a couple of reasons. One is that many people will simply not want to pay for an AI subscription. Second, search is still better at certain things, such as being integrated with e-commerce and local businesses, as well as being more transparent with sources. </p> <p>However, one of Google's biggest advantages is that it has a huge two-sided ad network that can connect advertisers to global, national, regional, or local audiences. This is not something an AI start-up can easily replicate, which makes subscriptions a more viable way to monetize AI chatbots than a pure advertising model.</p> <p>Meanwhile, if search usage declines or plateaus and AI chatbots generate only modest ad revenue, search ad prices are likely to rise. That's because advertisers will still need effective ways to reach consumers, and with fewer high-traffic platforms available, they'll be willing to pay a premium to access that limited supply.</p> <h2>4. More than just search</h2> <p>Search is a huge part of Alphabet's business, make no mistake. However, the company has other attractive leading businesses, including YouTube and its fast-growing cloud computing unit, Google Cloud. Its Waymo robotaxi business is also growing quickly and looks like its next big business. It's also made strides in quantum computing with its Willow chip.</p> <p>Also, don't count Google out in AI just yet. Its Gemini model is now ranked among the top-performing AI models, and the company is looking to use Gemini to enhance Google search with AI. Over time, this could help both defend and even expand Google's search business. Meanwhile, offering API access to its search and AI capabilities could create a promising new revenue stream, especially as developers embed these tools into enterprise and consumer applications.</p> <p>With a forward price-to-earnings ratio of around 16x this year's analyst estimates, the stock is too cheap in my view, and the risk is overstated.</p>                                                                            </div>

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<p>Shares of Alphabet (GOOGL) fell after Apple executive Eddy Cue reported a decline in searches on Safari, attributing it to the rise of AI chatbots. Despite concerns, there are reasons for Alphabet investors to remain calm: 1) Apple earns $20 billion annually from its search deal with Alphabet, making it unlikely to jeopardize this revenue. 2) Alphabet claims overall search query growth continues. 3) AI chatbots may adopt different monetization models, making them complementary to traditional search. 4) Google's extensive ad network remains a significant advantage over AI startups.</p>

- Shares of Alphabet fell after Apple executive Eddy Cue reported a decline in searches on Safari, attributing it to the rise of AI chatbots.  
- Despite concerns about search becoming obsolete, Alphabet continues to see overall query growth and maintains a strong advertising model, which is less affected by complex queries.  
- Additionally, Alphabet's diverse business portfolio, including YouTube and Google Cloud, along with advancements in AI, positions the company well for future growth.

Alphabet Stock Sell-Off: 4 Reasons Why You Shouldn't Panic About Google Search